Phippsburg treasurer apologizes for four years of payroll errors costing the town nearly $40,000

PHIPPSBURG, Maine — Voters authorized spending up to $40,000 from surplus Wednesday to cover errors made in the processing of town payroll taxes.

About 50 residents showed up for the special town meeting at the Phippsburg Elementary School gym.

Lisa Wallace, the town’s treasurer and tax collector, took responsibility and apologized Wednesday for not deducting enough tax for retirement benefits, Medicare or FICA from her and other employees’ paychecks.

The town owes an estimated $39,577 in FICA and Medicare withholding taxes, plus interest and penalties.

FICA stands for Federal Insurance Contributions Act. It’s a federal tax imposed on employers and workers that funds Social Security and Medicare.

Selectmen will draw up a legal contract with Wallace for reimbursement.

Wallace will pay her share of the missing withholding plus 25 percent of the interest and penalties. She will have $128 a week deducted from her paycheck until the debt is paid.

The town has a savings account of $1,242,779.

During the fiscal year 2012 audit, auditors discovered Wallace, in calendar year 2008, mistakenly coded her personal deductions in the payroll computer system to stop withholding income tax and Medicare payments. This affected the income tax and Medicare withholdings for the years 2008 through 2012.

Wallace, who has held her positions for eight years, stood in front of her friends and neighbors and spoke candidly Wednesday.

“I just want to take this opportunity to apologize for the mistake that has been going on for quite a few years,” she said. “I am 100 percent to blame for this.”

Up for re-election in May, she also pledged to meet with the auditor and town officials next week to study payroll procedures.

“I’m very disappointed in myself for not knowing 100 percent of the law,” she said.

Residents posed some tough questions for auditor Bill Brewer.

“I’m a little puzzled that it took auditors more than four years to discover this error,” Bob Cummings said.

Brewer said he was not hired to conduct a forensic audit, which is much more expensive and rigorous than a standard audit. The Board of Selectmen also has some oversight responsibility, he added.

Pat Percy said from the audience that she also questions the auditor’s proficiency.

“Lisa, you’re not all to blame,” Percy said. “Please don’t wear it all on your shoulders.”

Selectman Everett Perkins also voiced support for Wallace, explaining that the board is holding Wallace responsible for only 25 percent of the error.

“It came out as a mistake,” Perkins said. “We don’t feel that with all the talent that missed that, Lisa shouldn’t have to pay 100 percent.”

Cindy Brouwer said from the audience that the errors raise more questions.

“There were red flags all over this,” Brouwer said. “And it seems as though there should have been red flags right from 2008. There are too many gaps where it slipped through. It makes me question, what other gaps are there?”